Permanent Life Insurance Part 2: Tips and Points to Consider
In the first part on our website, we discussed the different types of Permanent Life Insurance and the coverage each one provides. In this follow-up post we will take a closer look at various points to consider when purchasing Life Insurance.
Permanent Life Insurance – Points to Consider
- Are the premiums within my budget? Be sure you want to spend the money for this type of long-term coverage.
- Can I commit to these premiums over the long term?
- If you don’t plan to keep the product for many years, consider another type of policy.
- Cashing in a permanent policy after only a couple of years can be a costly way to get insurance protection for a short term.
What does the policy illustration show?
An illustration shows policy premiums, death benefits, cash values and information about other items that can affect your cost of obtaining insurance. Your policy may provide for dividends to be paid to you as either cash or paid-up insurance. Or it could provide for interest credits that could increase your cash value and death benefit or reduce your premium. These items are not guaranteed*. Your costs or benefits could be higher or lower than those illustrated, because they depend on the future financial results of the insurance company. With variable life, your values will depend on the results of the underlying portfolio of investments.
Some figures are guaranteed* and some are not. Remember that the insurance company will honor the guaranteed* figures, subject to its financial strength.
If your policy is a variable life policy, be sure that the interest rate or rate of return assumed is reasonable for the underlying investment accounts to which you choose to allocate your premiums. It is important to keep in mind that an illustration is not a legal document. Legal obligations are spelled out in the policy itself.
Here are additional questions to ask about the policy illustration:
- Is the illustration up to date? Is it based on current experience?
- Is the classification shown in the illustration appropriate for me (i.e., smoker/non-smoker, male/female)?
- When are premiums due annually, monthly or otherwise? Which figures are guaranteed* and which are not?
- Will I be notified if the non-guaranteed* amounts change?
- Does the policy have a guaranteed* death benefit, or could the death benefit change depending on interest rates or other factors?
- Does the policy pay dividends or provide for interest credits? Are those figures incorporated into the illustration?
- Will my premiums always be the same? Is it possible that the premium will increase significantly if future interest rates are lower than the illustration assumes?
- If the illustration shows that, after a certain period of time, I will not have to make premium payments, is there a chance I could have to begin making payments again in the future?
- Is the premium level illustrated sufficient to guarantee* protection for my entire life?
Here are a few tips to keep in mind when purchasing a life insurance policy:
- Take your time. On the other hand, don’t put off an important decision that would protect your family. Make sure you fully understand any policy you are considering and that you are comfortable with the company and product.
- After you have purchased an insurance policy, keep in mind that you may have a “free-look” period usually 10 days after you receive the policy during which you can change your mind. During that period, read your policy carefully. If you decide not to keep the policy, the company will cancel the policy and give you an appropriate refund. Review the copy of your application contained in your policy. Promptly notify your agent or the company of any errors or missing information.
- Review your policy periodically or when your situation changes to be sure your coverage is adequate.
*Guarantees are based on the claims paying ability of the issuing insurance company.
** Availability, specifics, and costs of these riders vary by carrier and state.
We trust you found this information helpful but please feel free to contact us if you want to know more.